Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289569 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 283
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper brings novel insights into group coordination and price dynamics in complex environments. We implement an overlapping-generation model in the lab, where the output dynamics is given by the well-known chaotic quadratic map. This model structure allows us to study previously unexplored parameter regions where the perfect-foresight dynamics exhibits chaotic dynamics. This paper highlights three key findings. First, the price converges to the simplest equilibria, namely the monetary steady state or the two-cycle, in all markets. Second, we document a novel and intriguing finding: we observe a non-monotonicity of the behavior when complexity increases. Convergence to the two-cycle occurs for the intermediate parameter range, while both the extreme scenarios of a simple stable two-cycle and highly non-linear dynamics (with chaos) lead to coordination on the steady state in the lab. All indicators of coordination and convergence significantly exhibit this non-monotonic relationship in the learning-to-forecast experiments and this non-monotonicity persists in the learning-to-optimize design. Third, convergence in the learning-to-optimize experiment is more challenging to achieve: coordination on the two-cycle is never observed, although the two-cycle Pareto-dominates the steady state in our design.
Subjects: 
Overlapping-generation (OLG) models
Complexity
Learning
Equilibria selection
Laboratory experiments
JEL: 
E70
E17
C92
C62
Document Type: 
Working Paper

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